Norges Bank issues Norwegian kroner and offers banks’ access to the Bank’s deposit and lending facilities against collateral. Claims and liabilities between banks are settled by transferring funds between their accounts at Norges Bank. This settlement system is at the apex of the “payment pyramid” (see chart).
The payment system in Norway
Source: Norges Bank
The central bank may set terms and conditions for banks’ accounts as well as for instructions to transfer funds between various creditors. Norges Bank’s role in the payment system is enshrined in the purpose section of the Norges Bank Act, which specifies that Norges Bank shall “promote an efficient payment system domestically as well as vis-à-vis other countries”. Pursuant to the Payment Systems Act, Norges Bank is also the authorising and supervisory authority for interbank systems.
Approximately twenty banks settle directly with Norges Bank. Among them are most major banks that engage in high-volume daily trading in the foreign exchange and money markets. There are also two private settlement banks in Norway. Around a hundred banks settle their internal claims and claims against other banks through DnB NOR. Approximately 20 banks use Sparebank1 Midt-Norge as their settlement bank.
Situated between the settlement bank and participants are clearing houses. Clearing houses obtain accounting information and calculate net financial positions for multilateral settlements. Once the cash settlement between the banks involved is carried out, information about the settlement is transmitted to the participating banks that credit and debit the individual customer account.
- Clearing of retail payments, internet banking transactions and other payment orders from retail, corporate and public sector customers take place in the Norwegian Interbank Clearing System (NICS), operated by Bankenes Betalingssentral (BBS).
- Clearing of securities trades takes place in Verdipapirsentralen (VPS), Norway’s central securities depository, with cash settlement at Norges Bank.
Because the clearing and settlement systems (referred to in the chart as interbank systems) are important for a functioning economy, Norges Bank and participant banks focus on risk-mitigation measures. Large exposures between banks can also arise in these systems. The stability of the financial system may be in jeopardy if the interbank systems do not have mechanisms that limit risk.
- Current developments are discussed in the Annual Report on Payment Systems, which also deals with the customer-oriented parts of the payment system (systems for payment services in the chart).